Sarah McCabe – 10 August 2013
SHARES in Bank of Ireland topped 20c for the first time in two-and-a-half years yesterday as the market continued to reward the bank's latest six-month results. That values the bank at around a third of its value at the peak of the boom.
Its share price has more than doubled since the start of the year, rising 10pc over the past week alone after chief executive Richie Boucher said it was "close to profit". Yesterday it was the biggest gainer on the benchmark ISEQ Index.
A share price of 20c values the country's biggest bank at around €6bn. The bank has issued so many new shares since the financial crisis that a price rise of just 40c would see the bank valued at the same market capitalisation it enjoyed pre-recession.
Its share price came close to the 20c mark in May, but was then almost halved following a major slump in June. The latest rebound comes after the bank revealed that losses narrowed significantly between January and June, to €455m from €1.1bn in the same period in 2012.
Confidence in the bank was buoyed by the outlook Mr Boucher gave for the rest of the year. He said he was not concerned about the so-called "stress tests" that would soon test its financial strength. He said historical loan losses were becoming less of a problem and that the bank had protected its core franchises in Ireland through the crisis.
He added that Bank of Ireland could continue to grow its lending business even if the overall economy failed to grow because it is winning business from rivals.
Confidence was also boosted by a cut to deposit costs and an increase to lending rates. In the first six months of the year, the bank's net interest margin – the difference between what it pays out in interest on deposits versus what it earns on loans – increased to 1.65pc from 1.20pc. "People are really responding to this," said John McLoughlin, banking analyst at Goodbody Stockbrokers.
"The bank is confident it will hit a 2pc margin next year – it was previously thought that this would take until 2015."
Concerns over mortgage arrears have also calmed.
"We think that over the whole cycle, Bank of Ireland will only offer writedowns on about 9pc of mortgages in arrears" said Mr McLoughlin. "Across all of the country's banks, impairment charges from bad loans are close to peaking.
"Even though the number of mortgages in arrears on Bank of Ireland's books is still increasing, this is being offset by reductions in other types of bad loans."
Irish Independent
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